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When shopping for a car, should you buy new or used?

Cars sit on the used lot of Parkway Chrysler Mississauga on Wednesday, June 17, 2015. A number of Chrysler dealers are selling 2014 and 2015 cars, often with fewer than 200 km on the odometer as "used" vehicles.

J.P. MOCZULSKI/The Globe and Mail

Arian Beyzaei's dream is to own a Tesla.

His reality is a 2013 Honda Civic, which he bought in September, 2015, for $13,000. He put $3,000 down and is financing the other $10,000 over five years at an interest rate of about 4 per cent.

Mr. Beyzaei immediately ruled out buying a new car, which he calls "one of the worst financial decisions," given the rapid depreciation. (Experts say new cars depreciate about 10 per cent once they're driven off the sales lot, and 8 to 10 per cent each year.)

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"Used cars depreciate as well," says Mr. Beyzaei, 20, "but the rate of depreciation is much slower."

A leased car was an option, but Mr. Beyzaei wanted a tangible asset at the end of the lease term –especially since he plans to drive the car for as long as possible.

Purchasing new, used or leasing a vehicle is a decision people weigh when they look for a set of wheels. There are pros and cons to each choice, so it pays to spend some time researching each option.

For instance, a used car may be cheaper, but may not have the most advanced safety features – such as blind-spot warnings and backup cameras – as a new car, says auto industry analyst Dennis DesRosiers.

Many car buyers are also concerned about fuel efficiency, which is better in a new car than in similar sized used one.

"A vehicle loses its fuel efficiency every year it's in the marketplace," Mr. DesRosiers says.

Other advantages to new vehicles include longer warranties, which can keep repair bills down,​ and more financing options at low, or even sometimes zero rates, as dealers compete to lure consumers to their lots.

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Mr. DesRosiers isn't knocking used vehicles, though. In fact, he says today's used vehicles are more reliable than ever.

"There was an era when you were always cautious about the used-vehicle market. There was a saying that you were buying someone else's problem," Mr. DesRosiers says. "But, because of the high quality of new vehicles that are in the marketplace, that is less likely today. You can go out and get a quality ride that is going to last you three to five years in a vehicle that's six to 10 years old. It wouldn't be that unheard of to buy a high-quality 10-to-15-year-old vehicle."

Still, Mr. DesRosiers cautions used buyers to be careful about what they're purchasing, and from who.

"A used buyer has to do a lot of research," he says.

He warns against private sales, where buyers don't have the same warranty and service protections than if they bought from a licensed dealer.

"I personally would never buy a vehicle privately unless it's from a neighbour or relative," Mr. DesRosiers says. "If you buy from a reputable dealer you have recourse."

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Consumers also need to carefully consider what they can afford over the long term, says Simon Tanner, principal adviser at Vancouver-based Dynamic Planning Partners.

"The problem that I often find, with younger people in particular, is that they think in terms of, 'what's the most car I can get for what I can afford in payments?'" says Mr. Tanner.

Some will even stretch the payments beyond five years to make it work, not taking into careful consideration what other expenses might crop up later in life, such as kids and a mortgage.

"They're not looking at the duration," he says.

Because buying a car is often an emotional purchase, and one of the most expensive people will make in their lifetimes, Mr. Tanner recommends a cooling-off period between deciding what vehicle someone is looking for and making the actual purchase. He also advises doing a little homework.

"What I always say is, 'walk away from the purchase and see what it's going to look like in a longer-term financial plan, not just in the today.'"

Once you decided which vehicle to get, Mr. Tanner says buyers should seek out the lowest financing rate available, and then plan to pay off the loan as quickly as possible.

"At the end of the day that emotion – or maybe it's that new-car smell – is going to go away long before the payment does," he says. "You want the gap between the two to be as narrow as possible."

Mr. Beyzaei plans to have his car loan paid off in four years and then put the money into an investment account, instead of another car with a new round of payments.

"Then I will be way ahead," he says. "Getting a new car every five years is a lot sexier, but buying a used car and holding onto it for seven or eight years is where the real savings happen."

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About the Author
Contributor

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

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